Advice for a recent widow

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Advice for a recent widow

Post by reisner »

I am informally advising a friend, 73, whose husband was killed in a car crash five months ago. I would like your reactions to her situation and my advice.

Income--$3550 a month from SS and a rental house on her property

Insurance payouts for the death of her husband--1.2 million. Perhaps $50,000 in savings. No investments.

House--worth 2.4 million, with a $750,000 mortgage, $4500 a month.

The goal is to get her through the next four years, by which time, the assisted-living facility she has her eye on will be completed.

We are about to move our own investments from Vanguard to Schwab. My advice to her is to follow us to Schwab; put her money in a money market and a short term bond fund; and then do a version of cost averaging. Namely, to move about 3% a month into a total stock market fund and a bond fund, weighting stocks heavily. She would be fully invested in about three years. Over four years she will have depleted her investments by a couple of hundred thousand, but she will be ready to sell her home, freeing up another million and a half. At that point she should invest what left of that, after buying into the assisted living, in the stock and bond funds, weighing bonds heavily.

What do you think? Thanks.
User avatar
BolderBoy
Posts: 5777
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Advice for a recent widow

Post by BolderBoy »

reisner wrote: Tue Jun 15, 2021 10:57 am... and then do a version of cost averaging. Namely, to move about 3% a month into a total stock market fund and a bond fund, weighting stocks heavily. She would be fully invested in about three years.
The research folks say that it is best to get DCA accomplished inside 12 months. Portfolio performance suffers the longer one drags it out.

Otherwise the plan seems okay to me.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Gill
Posts: 7475
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Advice for a recent widow

Post by Gill »

So she basically has cash from life insurance and a house with a large mortgage. My initial impression is that she can't afford the house and should sell it quickly. At the very least I'd pay off that large mortgage with the insurance proceeds. What are her monthly living expenses? Once the house is sold then I'd start worrying about how to invest what remains. DCA over 36 months doesn't make sense. Won't she need a lump sum for the assisted living facility? How about reserving that in a short term bond fund and investing the rest in Vanguard's Retirement Income Fund.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
lakpr
Posts: 8003
Joined: Fri Mar 18, 2011 9:59 am

Re: Advice for a recent widow

Post by lakpr »

My take: she needs at least $4500 per month to pay the mortgage, which equates to $54,000 per year. Let me assume another $46k in living expenses, so she needs $100k to live by.

She needs 4 years worth of expenses = $400k in a relatively safe investment.

She can invest everything in the Vanguard Life Strategy Conservative Growth fund (VSCGX), which maintains a constant 40% stocks to 60% bonds mix. On a daily basis. Keep the first year worth of expenses in cash, and roll the remainder proceeds into VSCGX (you can hold this fund at Schwab). You will have invested $660k (60% of $1.1 million) into bonds straightaway that should provide for at least 6 years worth of expenses, and the rest will ride with the stock market.

Lumpsum invest into VSCGX.
LittleMaggieMae
Posts: 958
Joined: Mon Aug 12, 2019 9:06 pm

Re: Advice for a recent widow

Post by LittleMaggieMae »

If the 4500 mortgage includes Taxes and Insurance - that's 54,000. I'd add in 10K for maintenance (lawn and pool service, HVAC service, and some left over for other "stuff" that happens - or that can be used in 4 years when the house needs "refreshing" before it goes up for sale).
That's 64K for the house - and say 50K of every day expenses (utilities, car insurance, gas, food, fun stuff, housekeeper, etc) so $114 round tht up to 120K per year. or $480K (why not round up to $500K) over the next 4 years of living in the house and prepping it for sale.

I'd reserve atleast 500K of her cash for the next 4 years - which will include sale of her house and moving into her new home.

I would NOT pay off the mortgage. Doing so will not cut her monthly costs that much (she will still have to pay taxes and insurance on the house). I'm thinking it would be better to hold/invest the money - rather than lower the "monthly bills".

That's my only advice.
TXJeff
Posts: 107
Joined: Mon Sep 25, 2017 7:47 pm

Re: Advice for a recent widow

Post by TXJeff »

Your friend will be able to file this year's taxes as "married." That means, for example, if she sells the house this year, she gets the $500k married tax exemption, not $250k single exemption. So, assuming there's been at least $500k in gains on the house, she'd save $37,000+ in taxes selling it this year, vs a future year.
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

TXJeff,
Since California is a community property state, she gets a step-up in cost basis on the value of the house on the day her husband died. I have no idea how that is calculated. Given California's crazy real estate, it's conceivable the house will go up more than 250K in four years, but I doubt it will happen this year.
Dottie57
Posts: 10134
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Advice for a recent widow

Post by Dottie57 »

reisner wrote: Tue Jun 15, 2021 12:52 pm TXJeff,
Since California is a community property state, she gets a step-up in cost basis on the value of the house on the day her husband died. I have no idea how that is calculated. Given California's crazy real estate, it's conceivable the house will go up more than 250K in four years, but I doubt it will happen this year.
Does the state step up affect FEDERAL capital gains tax? Not sure the state law affects federal cg tax.
User avatar
retired@50
Posts: 6293
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Advice for a recent widow

Post by retired@50 »

reisner wrote: Tue Jun 15, 2021 12:52 pm TXJeff,
Since California is a community property state, she gets a step-up in cost basis on the value of the house on the day her husband died. I have no idea how that is calculated. Given California's crazy real estate, it's conceivable the house will go up more than 250K in four years, but I doubt it will happen this year.
You should have the house in question appraised by a recognized appraisal firm.

See links for more:
https://www.inman.com/2006/05/03/how-de ... ped-basis/

https://www.cmpappraisal.com/i-inherite ... ould-i-do/

Regards,
This is one person's opinion. Nothing more.
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

Thanks for the links.

Rob
OP
User avatar
David Jay
Posts: 11432
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Advice for a recent widow

Post by David Jay »

Gill wrote: Tue Jun 15, 2021 11:04 amMy initial impression is that she can't afford the house and should sell it quickly. At the very least I'd pay off that large mortgage with the insurance proceeds.
This!

Focusing your questions on which brokerage and what DCA percentage is ignoring the elephant in the room. Let's get the spending under control by at least getting rid of the mortgage.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

The mortgage is high because of several family tragedies. The one suitable assisted living facility in the area will not open for a few years, delayed by COVID. If she sold now, she would have to move twice in a short period, rather a lot to face after losing a husband and an adult son just over a year apart. Plus she has a lot of both husband's and son's possessions to dispose of, as well as the contents of an historic home lived in for over thirty years. A lot on her plate.
User avatar
celia
Posts: 13037
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Advice for a recent widow

Post by celia »

Dottie57 wrote: Tue Jun 15, 2021 1:20 pm
reisner wrote: Tue Jun 15, 2021 12:52 pm TXJeff,
Since California is a community property state, she gets a step-up in cost basis on the value of the house on the day her husband died. I have no idea how that is calculated. Given California's crazy real estate, it's conceivable the house will go up more than 250K in four years, but I doubt it will happen this year.
Does the state step up affect FEDERAL capital gains tax? Not sure the state law affects federal cg tax.
Yes, CA is the same as federal taxes on most things, including capital gains.

OP is not clear if the husband died this year or last. If he died in 2020, the friend is now subject to filing as Single.

OP, she needs to get a written appraisal on the houses to establish the step-up in value price. Then if she sells within 3 years of death, she can get a $500k exemption instead of just $$250K, since the husband would have lived in their house in at least 2 of the previous 5 years (before the sale date).

However, it appears there may be two houses on the property. (The rental will be an advantage to some buyers and a disadvantage to others.) The exemption for homeowner and living there only applies to the house they were living in. And when the property sells, she will no longer have rental income. The rental house also should have been depreciating on their taxes each year so that part of the real estate sale will have a bigger “gain” on it due to the depreciation since the appraisal. (I’m not sure how that impacts the step-up on value, if at all.)

As she needs the current assets to last through her lifetime, her assisted living expenses need to be kept under control. She may not be able to afford the new place being built as some of their building costs will be included in her monthly payments whereas an older place won’t be as expensive as this new place being built.
Last edited by celia on Tue Jun 15, 2021 2:05 pm, edited 1 time in total.
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

The husband died in January of this year. The rental on the property is grandfathered in, but a new buyer might not want to keep it--given the sort of buyers we are getting here on the California Central Coast. She'll be well able to afford the new assisted living facility, which will be the only one in the area that accepts pets and would allow her granddaughter to live with her.

We will most definitely be getting an appraisal promptly.
User avatar
celia
Posts: 13037
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Advice for a recent widow

Post by celia »

TXJeff wrote: Tue Jun 15, 2021 11:53 am Your friend will be able to file this year's taxes as "married." That means, for example, if she sells the house this year, she gets the $500k married tax exemption, not $250k single exemption. So, assuming there's been at least $500k in gains on the house, she'd save $37,000+ in taxes selling it this year, vs a future year.
The exemption on selling a house you own and live in is NOT tied to your tax filing status, but to your ownership and marital status at the time you owned/lived in it.
User avatar
David Jay
Posts: 11432
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Advice for a recent widow

Post by David Jay »

reisner wrote: Tue Jun 15, 2021 2:02 pm The husband died in January of this year. The rental on the property is grandfathered in, but a new buyer might not want to keep it--given the sort of buyers we are getting here on the California Central Coast. She'll be well able to afford the new assisted living facility, which will be the only one in the area that accepts pets and would allow her granddaughter to live with her.
You seem to be avoiding any response to the suggestion to pay off the mortgage. It is a much better short term use of funds than holding the cash in a money market for 3 years while DCAing into an asset allocation and burning through cash for those same 3 years to make mortgage payments.

She gets it all the principle back when she sells and moves into an assisted living facility.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
rich126
Posts: 2931
Joined: Thu Mar 01, 2018 4:56 pm

Re: Advice for a recent widow

Post by rich126 »

The other thing to keep in mind is the likelihood of the facility actually opening on time. Four years is a long time and lots of things could go wrong and delay or even cancel the facility?
User avatar
celia
Posts: 13037
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Advice for a recent widow

Post by celia »

reisner wrote: Tue Jun 15, 2021 10:57 am Income--$3550 a month from SS and a rental house on her property...

House--worth 2.4 million, with a $750,000 mortgage, $4500 a month.
Thinking about this some more, this seems inconsistent or you don’t have correct information.

How can someone get a mortgage for $750K or more if their SS is only in the range of $2k to $3K? If she or the husband was working when the mortgage was taken out, they would have had a good income to afford that mortgage. If they had a good-paying job back then, the SS would be more than that. Did she report the death to SS so she could get a higher benefit?

Or did they inherit the house with an existing mortgage on it? Or have they been refinancing when the equity rises since they couldn’t afford the payments?....

Something seems amiss here as she really can’t afford this house...

...and never could.
Last edited by celia on Tue Jun 15, 2021 2:52 pm, edited 1 time in total.
Minty
Posts: 447
Joined: Sun Mar 24, 2013 3:19 pm
Location: NorCal

Re: Advice for a recent widow

Post by Minty »

What's the interest rate on the mortgage? At least consider refi, perhaps after paying it down to the conforming level.
Core Four w/ nominal bonds & TIPS. Refi Rampage: Purchase: 3.875% 30 -> R1 3% 20 -> R2 2.375% 15 -> R3 1.99% 15
delamer
Posts: 11914
Joined: Tue Feb 08, 2011 6:13 pm

Re: Advice for a recent widow

Post by delamer »

lakpr wrote: Tue Jun 15, 2021 11:21 am My take: she needs at least $4500 per month to pay the mortgage, which equates to $54,000 per year. Let me assume another $46k in living expenses, so she needs $100k to live by.

She needs 4 years worth of expenses = $400k in a relatively safe investment.

She can invest everything in the Vanguard Life Strategy Conservative Growth fund (VSCGX), which maintains a constant 40% stocks to 60% bonds mix. On a daily basis. Keep the first year worth of expenses in cash, and roll the remainder proceeds into VSCGX (you can hold this fund at Schwab). You will have invested $660k (60% of $1.1 million) into bonds straightaway that should provide for at least 6 years worth of expenses, and the rest will ride with the stock market.

Lumpsum invest into VSCGX.
Given that she isn’t willing to sell the house now, the above is good advice.

I’d also figure out her likely net lump sum from the house sale — after repairs, closing costs & commissions, income taxes, and mortgage pay off. It’s easy to think of the house as a $2.4 million dollar nest egg, but that is overly optimistic.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
RubyTuesday
Posts: 915
Joined: Fri Oct 19, 2012 11:24 am

Re: Advice for a recent widow

Post by RubyTuesday »

Sell the house and move into the rental on the property?
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

At current prices she should pull 1.5 million out of the house and not have to pay taxes. I doubt she would want to pay off the house now and reduce her nest egg to under 500,000. Yes, there could be delays in the opening of the facility, but San Luis Obispo has gone crazy with building. Yes, she is now receiving her husband's higher SS, which he had been collecting as well as working full time as an insurance agent with a long list of private clients. That income stream disappeared. The high mortgage was due to wild cost overrun on a remodel of an historic home and private legal matters that could not be ignored.

One further question. Several respondents have recommended some fine retirement funds. Why use them instead of a traditional asset allocation? With a traditional AA, if the market goes down, you can live off the bonds, especially since she is foreseeing large profit from the house sale. With a blended fund you have to sell both.
User avatar
retired@50
Posts: 6293
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Advice for a recent widow

Post by retired@50 »

reisner wrote: Tue Jun 15, 2021 3:37 pm One further question. Several respondents have recommended some fine retirement funds. Why use them instead of a traditional asset allocation? With a traditional AA, if the market goes down, you can live off the bonds, especially since she is foreseeing large profit from the house sale. With a blended fund you have to sell both.
Does the 73 year old widow have the slightest desire to manage finances in this way?

Simplicity can be its own reward for those not inclined to optimally manage their stock/bond allocation percentages.

Regards,
This is one person's opinion. Nothing more.
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

She could handle two funds instead of one.
User avatar
dodecahedron
Posts: 5706
Joined: Tue Nov 12, 2013 12:28 pm

Re: Advice for a recent widow

Post by dodecahedron »

celia wrote: Tue Jun 15, 2021 2:48 pm
reisner wrote: Tue Jun 15, 2021 10:57 am Income--$3550 a month from SS and a rental house on her property...

House--worth 2.4 million, with a $750,000 mortgage, $4500 a month.
Thinking about this some more, this seems inconsistent or you don’t have correct information.

How can someone get a mortgage for $750K or more if their SS is only in the range of $2k to $3K? If she or the husband was working when the mortgage was taken out, they would have had a good income to afford that mortgage.
I would guess that it is probably a reverse mortgage (HECM). There is no income required to qualify for a HECM (which stands for Home Equity Conversion Mortgage.) Indeed HECMs can be structured to *provide* income in the form of a monthly annuity payment for the borrower.

The terms of the mortgage should be researched. If it was a HECM, the mortgage balance may have to be paid off within 12 months of the death of the person who took it out (or otherwise the property turned into the lender.) Newer HECMs have protections for surviving spouses that give them the option of living in the home for the rest of their lives but depending on when this mortgage was taken out (and how old she was when her late spouse originated the mortgage), she may or may not have that option.

More information on protections for surviving spouses here:

https://www.hud.gov/program_offices/hou ... ing_spouse
User avatar
dodecahedron
Posts: 5706
Joined: Tue Nov 12, 2013 12:28 pm

Re: Advice for a recent widow

Post by dodecahedron »

dodecahedron wrote: Tue Jun 15, 2021 3:59 pm
celia wrote: Tue Jun 15, 2021 2:48 pm
reisner wrote: Tue Jun 15, 2021 10:57 am Income--$3550 a month from SS and a rental house on her property...

House--worth 2.4 million, with a $750,000 mortgage, $4500 a month.
Thinking about this some more, this seems inconsistent or you don’t have correct information.

How can someone get a mortgage for $750K or more if their SS is only in the range of $2k to $3K? If she or the husband was working when the mortgage was taken out, they would have had a good income to afford that mortgage.
I would guess that it is probably a reverse mortgage (HECM). There is no income required to qualify for a HECM (which stands for Home Equity Conversion Mortgage.) Indeed HECMs can be structured to *provide* income in the form of a monthly annuity payment for the borrower.

The terms of the mortgage should be researched. If it was a HECM, the mortgage balance may have to be paid off within 12 months of the death of the person who took it out (or otherwise the property turned into the lender.) Newer HECMs have protections for surviving spouses that give them the option of living in the home for the rest of their lives but depending on when this mortgage was taken out (and how old she was when her late spouse originated the mortgage), she may or may not have that option.

More information on protections for surviving spouses here:

https://www.hud.gov/program_offices/hou ... ing_spouse
That said, it *could* have been a conventional mortgage if it was taken out long enough ago (back when subprimes were happening.) I personally know an elderly couple who were able to take out a big mortgage (cash-out refi) 20 years ago. They were well into their 70s with only SS and a small DB pension ($600 per month). The lender did not care that they did not have the income to support it. They eventually converted it into a HECM to make it less burdensome.
StealthRabbit
Posts: 597
Joined: Sat Jun 13, 2009 1:25 am

Re: Advice for a recent widow

Post by StealthRabbit »

What tax year was the death of spouse?

If 2021, she has a lot of homework / tax planning to take care of. (Which could mean a $500k exclusion on gain from sale of home, vs. $250k in the future). + a lot of tax scenerios for MFJ, vs, single (tax harvesting to Roth conversions...)

Get rid of / reduce that monthly mortgage cash drain!
ivgrivchuck
Posts: 804
Joined: Sun Sep 27, 2020 6:20 pm

Re: Advice for a recent widow

Post by ivgrivchuck »

reisner wrote: Tue Jun 15, 2021 10:57 am
What do you think? Thanks.
For a person at her age having a mortgage of 750k and an investment portfolio of 1.2M just doesn't make sense.

The simplest solution would be to pay off the mortgage which would still leave her $450k + house. $450k could be put into savings accounts.

If that sounds too unsafe, then simply reducing the mortgage by $500k would already significantly reduce the cash drag. That would still leave $700k liquid assets which I expect to be enough until the house is sold.

So everything centers around the house/mortgage/liquidity, this is less of an investment problem...
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
Outer Marker
Posts: 1980
Joined: Sun Mar 08, 2009 8:01 am

Re: Advice for a recent widow

Post by Outer Marker »

She has plenty of money with a $1.2M insurance payout and regular income. I'd do nothing for a while and let the dust settle until she figures out what she wants to do. No need to complicate things or force decisions that don't need to be made. I see no need to "follow" you from Vanguard to Schwab. They are both perfectly fine custodians. That's a lot of paperwork and aggravation for no good reason. It may well be that Vanguard PAS is the best long term solution for managing her finances.

It doesn't sound like she is wedded to staying in the house. She wants to move. Getting rid of the large mortgage and the hassle of being a landlord in one fell swoop sound like a good deal. He husband is gone. She doesn't need that much space. And, living alone in a big house is lonely; she'd likely do better in a condo or 55 plus apartment community. I wouldn't at all be dissuaded by moving twice. "Downsizing" is a one-time exercise. Once you reduce your belongings to a one-bedroom apartment, a second move to assisted living is a half-day turnkey operation for professional movers who will pack up and unpack everything from furniture to dishes. Downsizing is a hard process, but it only needs to be done once, and doesn't need to be done now.

I'd also regard a 4 year completion horizon for the new complex with suspicion. Developments with money behind them move apace and don't take that long.
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

Obviously I need to look into her mortgage and into the retirement facility under construction. Personally, I would move twice. I doubt she'll go for that much added transition at this point.

Her husband died in January of 2021.

I am down on Vanguard after twenty years with them. Customer service over a charitable donation of stock has been abysmal: seven and a half months, countless phone calls (on hold), emails, lack of communication on VG messages, and it's still not done. At Schwab it would have taken two days. There's someone you cal talk to, offices you can go into.
Outer Marker
Posts: 1980
Joined: Sun Mar 08, 2009 8:01 am

Re: Advice for a recent widow

Post by Outer Marker »

reisner wrote: Tue Jun 15, 2021 7:31 pm Personally, I would move twice. I doubt she'll go for that much added transition at this point. . . .

I am down on Vanguard after twenty years with them. Customer service over a charitable donation of stock has been abysmal: seven and a half months, countless phone calls (on hold), emails, lack of communication on VG messages, and it's still not done. At Schwab it would have taken two days. There's someone you cal talk to, offices you can go into.
You might be able to help your friend by reassuring her that once the first move is done, the second is easy. I've helped three beloved elder relatives through this "process" in the last 10 years - from home, to apartment, to assisted living, and beyond . . . It's the first move that is by far the most traumatic.

I agree that Vanguard customer service has slipped a bit. We "die hards" were perhaps a bit spoiled. Vanguard is huge. They are better than the other "big" financial institutions I deal with. Bank of America has local branches -- but they intentionally understaff them (admitted to me by a manager) to drive people to automatic tellers and online. Very frustrating when I needed $3K in $100 bills for a drug deal and had to wait an hour in line to cash a check (kidding, but I really did need the cash for third world travel). I prefer Fidelity, but in your widow's situation, she's not likely to need anything complicated enough to require regular care and feeding by customer service . . .

To back up to your original question, I'd deploy her assets in a 30/70 portfolio over no more than 12 months. An all-in-one fund like Target Retirement income might fit the bill.
User avatar
dodecahedron
Posts: 5706
Joined: Tue Nov 12, 2013 12:28 pm

Re: Advice for a recent widow

Post by dodecahedron »

Outer Marker wrote: Tue Jun 15, 2021 8:09 pm You might be able to help your friend by reassuring her that once the first move is done, the second is easy. I've helped three beloved elder relatives through this "process" in the last 10 years - from home, to apartment, to assisted living, and beyond . . . It's the first move that is by far the most traumatic.
I do not see what the immediate urgency is in moving this recently and suddenly bereaved widow out of a home that may well be full of precious memories. The standard advice to new widows, especially unexpectedly bereaved ones who had no warning nor time to prepare emotionally for the loss, is not to make any big irreversible decisions for the first year.
Outer Marker wrote: Tue Jun 15, 2021 8:09 pm I agree that Vanguard customer service has slipped a bit. We "die hards" were perhaps a bit spoiled. Vanguard is huge. They are better than the other "big" financial institutions I deal with. Bank of America has local branches -- but they intentionally understaff them (admitted to me by a manager) to drive people to automatic tellers and online. Very frustrating when I needed $3K in $100 bills for a drug deal and had to wait an hour in line to cash a check (kidding, but I really did need the cash for third world travel). I prefer Fidelity, but in your widow's situation, she's not likely to need anything complicated enough to require regular care and feeding by customer service . . .
My own experience is that Schwab, TIAA, and Vanguard have all "slipped a bit" in recent years, but I do have a preference for providers with brick and mortar offices nearby, all else being equal, so after kicking tires for a while, I moved my Vanguard funds in my taxable account in-kind to Schwab. My further response has been to simplify my life and avoid doing things that require a lot of moving parts. If you keep things simple, there is less room for things to go wrong. I would never ask Schwab to donate shares in-kind directly to a charity with an account at a different broker. I have a Schwab DAF and if I want to donate in-kind, I simply direct shares from my Schwab taxable account to my Schwab DAF and the funds are available to donate from the DAF to the charity within a few days.
Outer Marker wrote: Tue Jun 15, 2021 8:09 pm To back up to your original question, I'd deploy her assets in a 30/70 portfolio over no more than 12 months. An all-in-one fund like Target Retirement income might fit the bill.
What, precisely is the big rush here? Why "no more than 12 months?" to DCA into stocks. As an emotionally fragile widow just getting my bearings after my husband died eight years ago, I took some time to adjust to the idea of being responsible for investment decisionmaking.

At first I felt very stressed and overwhelmed and then a friend who is a professional financial advisor gave me some free advice: "Take your time. Don't feel you *have* to do anything right away."

I realized he was right. This is not a dynamic programming optimization problem, emotional/psychological adjustment issues are critical. A few months after my husband's unexpected death in 2013, I was still not sleeping well, my physical sensations were disorienting and confusing.

And then I discovered Bogleheads and this very good advice in the wiki about managing sudden unexpected windfalls (like large life insurance benefits),, which reinforced the same message:
Bogleheads wiki wrote:Do nothing rash. Set aside one year's living expenses and place the rest of the windfall into low risk investments (FDIC insured accounts, money market funds, treasury bills) for one year. As it may take as long as five years for the windfall recipient to adjust to a new life, this pause provides a chance for emotions to cool, helps avoid impulsive behavior, and, if warranted, allows the recipient time to put together a team of professional advisers.
Reading the advice above was a great relief. I felt it was giving me permission to take my time and think things through about many things, big and small, including downsizing, relocation to be near family and/or in a warmer place, etc.

Widows have up to TWO years after a spouse dies to benefit from the $500K exclusion. In addition, as others have noted, the cost basis for the house steps up to the value at husband's death. No big rush to sell right now.
Outer Marker
Posts: 1980
Joined: Sun Mar 08, 2009 8:01 am

Re: Advice for a recent widow

Post by Outer Marker »

dodecahedron wrote: Tue Jun 15, 2021 9:05 pm
Outer Marker wrote: Tue Jun 15, 2021 8:09 pm You might be able to help your friend by reassuring her that once the first move is done, the second is easy. I've helped three beloved elder relatives through this "process" in the last 10 years - from home, to apartment, to assisted living, and beyond . . . It's the first move that is by far the most traumatic.
I do not see what the immediate urgency is in moving this recently and suddenly bereaved widow out of a home that may well be full of precious memories. The standard advice to new widows, especially unexpectedly bereaved ones who had no warning nor time to prepare emotionally for the loss, is not to make any big irreversible decisions for the first year.
Outer Marker wrote: Tue Jun 15, 2021 8:09 pm I agree that Vanguard customer service has slipped a bit. We "die hards" were perhaps a bit spoiled. Vanguard is huge. They are better than the other "big" financial institutions I deal with. Bank of America has local branches -- but they intentionally understaff them (admitted to me by a manager) to drive people to automatic tellers and online. Very frustrating when I needed $3K in $100 bills for a drug deal and had to wait an hour in line to cash a check (kidding, but I really did need the cash for third world travel). I prefer Fidelity, but in your widow's situation, she's not likely to need anything complicated enough to require regular care and feeding by customer service . . .
My own experience is that Schwab, TIAA, and Vanguard have all "slipped a bit" in recent years, but I do have a preference for providers with brick and mortar offices nearby, all else being equal, so after kicking tires for a while, I moved my Vanguard funds in my taxable account in-kind to Schwab. My further response has been to simplify my life and avoid doing things that require a lot of moving parts. If you keep things simple, there is less room for things to go wrong. I would never ask Schwab to donate shares in-kind directly to a charity with an account at a different broker. I have a Schwab DAF and if I want to donate in-kind, I simply direct shares from my Schwab taxable account to my Schwab DAF and the funds are available to donate from the DAF to the charity within a few days.
Outer Marker wrote: Tue Jun 15, 2021 8:09 pm To back up to your original question, I'd deploy her assets in a 30/70 portfolio over no more than 12 months. An all-in-one fund like Target Retirement income might fit the bill.
What, precisely is the big rush here? Why "no more than 12 months?" to DCA into stocks. As an emotionally fragile widow just getting my bearings after my husband died eight years ago, I took some time to adjust to the idea of being responsible for investment decisionmaking.

At first I felt very stressed and overwhelmed and then a friend who is a professional financial advisor gave me some free advice: "Take your time. Don't feel you *have* to do anything right away."

I realized he was right. This is not a dynamic programming optimization problem, emotional/psychological adjustment issues are critical. A few months after my husband's unexpected death in 2013, I was still not sleeping well, my physical sensations were disorienting and confusing.

And then I discovered Bogleheads and this very good advice in the wiki about managing sudden unexpected windfalls (like large life insurance benefits),, which reinforced the same message:
Bogleheads wiki wrote:Do nothing rash. Set aside one year's living expenses and place the rest of the windfall into low risk investments (FDIC insured accounts, money market funds, treasury bills) for one year. As it may take as long as five years for the windfall recipient to adjust to a new life, this pause provides a chance for emotions to cool, helps avoid impulsive behavior, and, if warranted, allows the recipient time to put together a team of professional advisers.
Reading the advice above was a great relief. I felt it was giving me permission to take my time and think things through about many things, big and small, including downsizing, relocation to be near family and/or in a warmer place, etc.

Widows have up to TWO years after a spouse dies to benefit from the $500K exclusion. In addition, as others have noted, the cost basis for the house steps up to the value at husband's death. No big rush to sell right now.
If you read my original post, you’re criticizing me for the exact OPPOSITE of what I said.
User avatar
dodecahedron
Posts: 5706
Joined: Tue Nov 12, 2013 12:28 pm

Re: Advice for a recent widow

Post by dodecahedron »

Outer Marker wrote: Tue Jun 15, 2021 9:22 pm If you read my original post, you’re criticizing me for the exact OPPOSITE of what I said.
I am not criticizing YOU (which would be ad hominem) but rather objecting to the advice that you (and others above) are giving in advising that this brand new widow move out of her house (with 30 years of memory and so many emotionally laden things to sort through) in the immediate aftermath of a tragic and unexpected loss.
many sources wrote:The top five most stressful life events are:

Death of a loved one
Divorce
Moving
Major illness or injury
Job loss
Anyone of these life events can have major physical health and mental health consequences. Being newly widowed, especially unexpectedly, is itself documented as resulting in significantly higher risk of death or other adverse health consequences (e.g., hospitalization) in the aftermath. Urging an ASAP unnecessary move (moving is #3 on the list above) based on purely financial considerations is adding an additional stressor, especially if there is no place that particularly appeals to her at the moment.

My mother was widowed 15 years ago and stayed in an arguably too large and too expensive house filled with memories for several fondly remembered years after my father died. It was big enough to encourage overnight visits from her farflung adult children and her large and growing brood of grandchildren, who had sleepovers with cousins in her basement and romped around the large yard. She hosted some wonderful family gatherings there, including several years of epic Thanksgivings and Easter dinners. She invited children and grandchildren to choose things (books, neckties, chess sets) that had belonged to my father that had meaning and value for them, in a leisured and unhurried manner.

She had much less than the OP's widow friend (no big life insurance payout and much smaller SS) but she was resourceful and figured out how to make the finances work for quite a while, buying some time with a HECM reverse mortgage (which gave her funds to deal with significant maintenance, roof, etc.) and then after a few years gradually started visiting open houses and talking to friends who lived in different apartments and condos nearby before figuring out a downsizing approach that worked for her, on her timetable.
Last edited by dodecahedron on Tue Jun 15, 2021 10:32 pm, edited 1 time in total.
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

Dodecahedron,

I am the OP here, and every word of your post was spot on advice, which I will share with my friend. I think the only rush here is to understand the terms of the very expensive mortgage and also understand how reliable the developer of her planned assisted living is and to create a Plan B, C, D. I was myself perhaps in a rush to invest her funds because she, like many widows, was in a super rush. It was with some difficulty that I persuaded her not to buy a ruinous annuity, and I felt pressed to come up with a better alternative PDQ.

Rob
Outer Marker
Posts: 1980
Joined: Sun Mar 08, 2009 8:01 am

Re: Advice for a recent widow

Post by Outer Marker »

dodecahedron wrote: Tue Jun 15, 2021 10:19 pm
Outer Marker wrote: Tue Jun 15, 2021 9:22 pm If you read my original post, you’re criticizing me for the exact OPPOSITE of what I said.
I am not criticizing YOU (which would be ad hominem) but rather objecting to the advice that you (and others above) are giving in advising that this brand new widow move out of her house (with 30 years of memory and so many emotionally laden things to sort through) in the immediate aftermath of a tragic and unexpected loss.
dodecahedron, not a contest, and OP's subsequent post trumps the rest, but we are saying the same thing. I am most definitely in the "go slow" camp. And I've helped more loved ones though the process than anyone would ever want to. The decision to leave the house is a very personal one, and in this case is not motivated by any immediate financial necessity.

There's no urgency, but it need not be four years. I can say from personal experience with my mom that living in a single family house alone is no panacea, and can be dangerous. After my dad passed, mom would have done much better in "independent" living, not suffered the broken hip, not set the house on fire, not had a heart attack as a result, etc, etc. But she loved her "little house", hung on at all cost, and threw out every caregiver I provided. And she was lonely.

At the end of the day, when she landed in assisted living, she was much happier. She was a school teacher, an outgoing person, and made friends right away. My Aunt, who delayed until later, and suffered from alsheimers by that time did not fare a well. 73 is still young these days. Time to take trips, spend time with grandkids, etc. Not be tied down to a house and being a landlord.

I agree that any investment decisions are secondary. A 30/70 AA hardly requires DCA. My point is to get it over with, "set it and forget it" and move on with other things.
User avatar
dodecahedron
Posts: 5706
Joined: Tue Nov 12, 2013 12:28 pm

Re: Advice for a recent widow

Post by dodecahedron »

reisner wrote: Tue Jun 15, 2021 10:27 pm It was with some difficulty that I persuaded her not to buy a ruinous annuity, and I felt pressed to come up with a better alternative PDQ.

Rob
Very good that you were able to persuade her not to buy the ruinous annuity. Unfortunately bereaved widows with little experience in financial matters can be very vulnerable targets. .
User avatar
dodecahedron
Posts: 5706
Joined: Tue Nov 12, 2013 12:28 pm

Re: Advice for a recent widow

Post by dodecahedron »

Outer Marker wrote: Tue Jun 15, 2021 10:57 pm There's no urgency, but it need not be four years. I can say from personal experience with my mom that living in a single family house alone is no panacea, and can be dangerous. After my dad passed, mom would have done much better in "independent" living, not suffered the broken hip, not set the house on fire, not had a heart attack as a result, etc, etc. But she loved her "little house", hung on at all cost, and threw out every caregiver I provided. And she was lonely.

At the end of the day, when she landed in assisted living, she was much happier. She was a school teacher, an outgoing person, and made friends right away. My Aunt, who delayed until later, and suffered from alsheimers by that time did not fare a well. 73 is still young these days. Time to take trips, spend time with grandkids, etc. Not be tied down to a house and being a landlord.
Definitely a very highly individual decision. If my mom had died before my dad, I could definitely see him wanting to stubbornly and irrationally stay on by himself living in their house, which would have been impossibly dangerous due to his physical and cognitive challenges, similar to your mom's experiences.

And I definitely agree that it need not be four years before she decides she is ready to move on.

Different things work for different folks.

My mom (turning 90 this year) now lives in a regular condo building and loves the diversity of ages and circumstances among her neighbors (there are a few young school-age kids in the building, many young and middle aged professionals, and a good number of folks her age.) She has been a Zoom user for many years (we had Zoom family meetings every week starting years before the Pandemic) and enjoys serving on the board of her condo HOA and on the board of another of another nonprofit. There is nice reciprocity--she occasionally watches her neighbors' kids while their parents run brief errands and in turn the parents help my mom with minor maintenance issues in her unit or bring her homemade soups. There is a woman who works half-time for the HOA cleaning the common areas who is also available to be engaged by the residents to clean their units. Mom, who can still manage light housework, is one of her regular clients for the heavy duty vacuuming/dusting/scrubbing a couple times a month. It really is ideal for her particular circumstances, though not a concept we could have ever imagined at the time when my dad died 15 years ago.

My mom's current condo is located just a block or so from her former single family home, so she still has all her friendly former neighbors living nearby (they bring her produce from their gardens and she bakes things for them) and she is still in easy walking distance of her church. She had a wonderful network of friends from all her committee work and book clubs even when she was living in her single family home.

I have several aunts in their 80s who have been happy independently living in regular apartments and condos like my mom. But I have another aunt (my dad's sister) who was fortunately aware enough to recognize that she was developing dementia and after her husband died, she moved into a nice assisted living place where she has been happy for many years. When she first moved there, she was teaching water aerobics in their community pool!

I am 67 and still living in the single family home where my husband and I raised our kids. I share it with my adult daughter and it is too big for us, but we are both attached to it and I can afford it. Tentatively hoping to age in place here, but realistic enough to know that I should probably explore other options before I might need them down the road. The school district is excellent and I do sometimes have fantasies that if I need home help in my later years, I could convert space downstairs into a bedroom for me and give the huge master suite and another upstairs bedroom to a single parent and teenager who could live with me in a school district they might not otherwise be able to afford and help some around the house and yard as needed.
User avatar
celia
Posts: 13037
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Advice for a recent widow

Post by celia »

reisner wrote: Tue Jun 15, 2021 7:31 pm I am down on Vanguard after twenty years with them. Customer service over a charitable donation of stock has been abysmal: seven and a half months, countless phone calls (on hold), emails, lack of communication on VG messages, and it's still not done. At Schwab it would have taken two days. There's someone you cal talk to, offices you can go into.
We all have difficulties with different businesses (and people) over time. Our current difficulty is with our Medicare drug plan. Vanguard has resolved our difficulties in a reasonably short time.

Just as you are feeling negative about Vanguard and want to move to Schwab, there is someone else out there who is having troubles with Schwab and is planning on moving to Vanguard.
:D

Have you asked to talk to a supervisor, then work your way up the chain of command (over time) until you find someone who knows a “solution” for your problem? It sounds like you may have been talking to people who don’t understand your problem. Note that complaints about phone calls and non-responses is not the problem. Your donation is the problem. Focus on that and don’t make the next phone rep (or supervisor) feel like they are responsible for wait times and non-responses. That’s just life.
Northern Flicker
Posts: 8058
Joined: Fri Apr 10, 2015 12:29 am

Re: Advice for a recent widow

Post by Northern Flicker »

reisner wrote: Tue Jun 15, 2021 10:57 am I am informally advising a friend, 73, whose husband was killed in a car crash five months ago. I would like your reactions to her situation and my advice.

Income--$3550 a month from SS and a rental house on her property

Insurance payouts for the death of her husband--1.2 million. Perhaps $50,000 in savings. No investments.

House--worth 2.4 million, with a $750,000 mortgage, $4500 a month.

The goal is to get her through the next four years, by which time, the assisted-living facility she has her eye on will be completed.

We are about to move our own investments from Vanguard to Schwab. My advice to her is to follow us to Schwab; put her money in a money market and a short term bond fund; and then do a version of cost averaging. Namely, to move about 3% a month into a total stock market fund and a bond fund, weighting stocks heavily. She would be fully invested in about three years. Over four years she will have depleted her investments by a couple of hundred thousand, but she will be ready to sell her home, freeing up another million and a half. At that point she should invest what left of that, after buying into the assisted living, in the stock and bond funds, weighing bonds heavily.

What do you think? Thanks.
I think she could pay off the mortgage, which is likely to save more in interest payments than she will earn in bond interest.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
lakpr
Posts: 8003
Joined: Fri Mar 18, 2011 9:59 am

Re: Advice for a recent widow

Post by lakpr »

reisner wrote: Tue Jun 15, 2021 3:37 pm One further question. Several respondents have recommended some fine retirement funds. Why use them instead of a traditional asset allocation? With a traditional AA, if the market goes down, you can live off the bonds...
I have not seen this particular question addressed yet, let me answer. How do you know that the market is not doing well? You expect the widow at 73 years old to be watching CNN daily? Or if you do sell bonds or stocks, how confident are you that your sell decisions are correct? Do you need the stress of second guessing yourself?

With a blended fund, the fund manager rebalances on daily basis. Unemotionally. By the mandate of the fund, they sell the daily winners and buy that day's losers No drama, no second guessing yourself required. Have the confidence that whatever is happening in the market, your investments are in the same 40:60 or 30:70 blend; today and tomorrow and every day of your life. That confidence and peace of mind and truly passive investing is why the Target Date funds or blended funds are highly recommended.
User avatar
Wiggums
Posts: 4105
Joined: Thu Jan 31, 2019 8:02 am

Re: Advice for a recent widow

Post by Wiggums »

lakpr wrote: Wed Jun 16, 2021 1:47 am
reisner wrote: Tue Jun 15, 2021 3:37 pm One further question. Several respondents have recommended some fine retirement funds. Why use them instead of a traditional asset allocation? With a traditional AA, if the market goes down, you can live off the bonds...
I have not seen this particular question addressed yet, let me answer. How do you know that the market is not doing well? You expect the widow at 73 years old to be watching CNN daily? Or if you do sell bonds or stocks, how confident are you that your sell decisions are correct? Do you need the stress of second guessing yourself?

With a blended fund, the fund manager rebalances on daily basis. Unemotionally. By the mandate of the fund, they sell the daily winners and buy that day's losers No drama, no second guessing yourself required. Have the confidence that whatever is happening in the market, your investments are in the same 40:60 or 30:70 blend; today and tomorrow and every day of your life. That confidence and peace of mind and truly passive investing is why the Target Date funds or blended funds are highly recommended.
+1
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

Very good point about blended funds. I've glanced at the retirement funds suggested, and it looks like the VG Wellington Fund outperforms them.
Rob
lakpr
Posts: 8003
Joined: Fri Mar 18, 2011 9:59 am

Re: Advice for a recent widow

Post by lakpr »

reisner wrote: Wed Jun 16, 2021 8:45 am Very good point about blended funds. I've glanced at the retirement funds suggested, and it looks like the VG Wellington Fund outperforms them.
Rob
Wellington is a 65% stocks + 35% bonds fund, which may be a risky proposition for a 73 year old. I usually recommend going no more aggressive than Age-20 in bonds (stated another way: 120-Age in stocks). By that yardstick, your friend should have no more than 47%, ok if you round it to 50%, of the portfolio in stocks. The higher stock allocation is what is leading to the outperformance.

Wellington is also actively managed, and only invests in 100 stocks. While we do have a soft corner for this fund owing to its very long track record of outperformance, it is also taking a concentrated bet -- and antithesis of Boglehead principles of investing in broad market index funds.

If you do think 60:40 could be an appropriate mix for your friend, consider VBIAX (Vanguard Balanced Index fund) or VSMGX (Vanguard Life Strategy Moderate Growth Fund) as better funds than Wellington, as those funds reinvest it in the index funds ...
delamer
Posts: 11914
Joined: Tue Feb 08, 2011 6:13 pm

Re: Advice for a recent widow

Post by delamer »

reisner wrote: Wed Jun 16, 2021 8:45 am Very good point about blended funds. I've glanced at the retirement funds suggested, and it looks like the VG Wellington Fund outperforms them.
Rob
Outperformance comes with more volatility and more risk.

That’s a basic fact of investing.

Is the a tradeoff your friend is willing to make?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
Outer Marker
Posts: 1980
Joined: Sun Mar 08, 2009 8:01 am

Re: Advice for a recent widow

Post by Outer Marker »

delamer wrote: Wed Jun 16, 2021 12:38 pm
reisner wrote: Wed Jun 16, 2021 8:45 am Very good point about blended funds. I've glanced at the retirement funds suggested, and it looks like the VG Wellington Fund outperforms them.
Rob
Outperformance comes with more volatility and more risk.

That’s a basic fact of investing.

Is the a tradeoff your friend is willing to make?
As a diehard indexer, I'm annoyed that Wellington consistently outperforms. I don't own it, and I don't plan to, but it is annoying!
Northern Flicker
Posts: 8058
Joined: Fri Apr 10, 2015 12:29 am

Re: Advice for a recent widow

Post by Northern Flicker »

reisner wrote: Wed Jun 16, 2021 8:45 am Very good point about blended funds. I've glanced at the retirement funds suggested, and it looks like the VG Wellington Fund outperforms them.
Rob
No, it outperformed in the past. That is all you are learning from looking at the data.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
DebiT
Posts: 467
Joined: Sat Dec 28, 2013 1:45 pm

Re: Advice for a recent widow

Post by DebiT »

I have no comment on the mortgage. As a 63 year old widowed only 2 years ago, I am strongly in the go slowly camp. It’s not a question of stay 4 years, move in 4 years, etc. How she feels now is likely not how she’ll feel in a year or two or 5. Likely she needs time to get used to things. If the house is too big, she’ll figure it out, and then she will want to move, perhaps before the other place is ready. Or, she may not.

She is lucky to have a good friend like you. Help her learn how to handle the bills and the investments. That’s a lot for someone who may not be used to it.
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
Topic Author
reisner
Posts: 498
Joined: Fri Jun 20, 2008 12:34 pm

Re: Advice for a recent widow

Post by reisner »

Thanks, sweetie!
paisa
Posts: 8
Joined: Tue Jun 15, 2021 7:54 pm

Re: Advice for a recent widow

Post by paisa »

As a recent (3 month old) widow, I found the 'Go slow' advice most helpful. My husband died after a devastating prolonged acute on chronic illness (we weren't allowed to see each other because of the pandemic every time he was admitted). I had several of the highly stressful events: illness, husband's job loss, death. And then the realtor tried to "help". We had always planned to downsize but moving was one event I pushed back on.
Grateful to have found the Bogleheads. Thank you.
Post Reply